What is the cost of Baghdad’s compromise with Kurdish autonomy ?

Last week the Iraqi central government and authorities of the Kurdish autonomy reached an agreement on oil payments. Baghdad promised to pay all its debts for the exported Kurdish oil and in the future to pay for the work of foreign companies on the territory of the autonomy. Instead the Kurdish autonomy will resume oil supplies to the central government which were interrupted four months ago.

The issue of oil fields in the territory of the Kurdish autonomy has been a bone of contention for more than a year between the central government of Iraq and the administration of the autonomy. Kurdish authorities bypassing Baghdad began to cooperate with foreign oil companies and even announced their intention to build an oil pipeline within two years in Turkey in order to reduce dependence on the central government. Ankara has reacted approvingly to this signal and stated its readiness to cooperate with the Kurdish autonomy of Iraq in the future.

Meanwhile, the Iraqi parliament has been considering for the past seven years and each time postpones the adoption of a law on oil which envisages joint development of oil and gas fields by federal and regional authorities. Under the bill, incomes from hydrocarbon production will be shared in a ratio of 60 per cent to the central government's budget, 40 per cent the regional government.

Achievement of this agreement on oil payments can be regarded as Baghdad's compromise and a green light for the Kurdish government. The central government has decided to make concessions to the Kurdish autonomy, but it is hard to believe that Baghdad has taken this step only for fear of losing 140,000 barrels per day supplied from the autonomy, given that oil exports from Iraq grew rapidly during the period when the autonomy suspended its supplies and last month reached 2.5 million barrels per day.

Baghdad's compromise becomes clearer when considering it in light of the country's president and prime minister's visit to the Sulaymaniyah Province in Kurdish autonomy yesterday. It is interesting that immediately after signing an agreement between the parties, Iraqi President Jalal Talabani and Prime Minister Nouri al-Maliki, accompanied by Deputy Prime Minister for Energy Hussain al-Shahristani met with Kurdish autonomy head Massoud Barzani.

In addition to ways to solve the political crisis, the meeting also discussed very important issues for the country namely the implementation of Article 140 of the Iraqi Constitution, according to which Kirkuk Province is scheduled to hold a referendum on whether its people want to join the Kurdish autonomy or prefer to remain part of Iraq. Under this article of the Constitution, the referendum covers part of the provinces of Diyala, Saladin and Nineveh, which are as rich in hydrocarbons as Kirkuk.

Kirkuk has 13 per cent of Iraq's proven oil reserves and is the second major oil producer in the country and also cost of oil production in this region is considered the lowest in Iraq. Important oil and gas fields are located in the provinces of Diyala and Nineveh.The referendum was scheduled for 2007, but is being postponed from year on year.

However amid the energy crisis between Baghdad and the Kurdish autonomy this issue has again become relevant. Therefore, Turkish Foreign Minister Ahmet Davutoglu's unexpected visit to Kirkuk, which is very sensitive for Baghdad, was critically apprehended by Al-Maliki government. All the more so in recent years Ankara has noticeably enhanced cooperation with the Kurdish autonomy of Iraq and a strengthening of economic relations between the parties has been observed.

Perhaps, given the growing economic and political power of the Kurdish autonomy, the federal government has decided to make concessions for it and winning Barzani's favour to postpone the referendum for a few more years, the results of which will evidently not be in favour of Baghdad.

It is also possible that at a background of the all processes, the Iraqi parliament will at last pass a law on oil which will ensure Baghdad that other hydrocarbon rich provinces such as Mosul and Basra will not follow the Kurdish autonomy and will not cooperate with foreign oil companies without the consent of the central government